System Changes form 1st April 2021 for Businesses

The new financial year starts tomorrow, and there are many activities to be done as per year ending for the organization. Apart from those year-ending activities, some changes must be done from 1^st April 2021 with respective compliances from GST, Income Tax & MCA purposes. These changes are statutory for some and for some in improving the ease of doing business. Key changes required to be carried out from 1^st April in are listed below

1. New document series

As per provisions of Goods and Service Tax, the taxpayers must maintain unique number series for the documents being issued by them for every financial year. The document sequence has to be re-set for some accounting packages. It is automatic in some accounting packages, cases where it has to be done manually; the taxpayers have to be careful and complete this step before creating any new transactions for the new financial year. Document Sequence/numbering has to be changed for the following documents in GST

• Tax Invoice
• Bill of Supply
• Tax Invoice Cum Bill of Supply
• Debit Note
• Credit Note
• Delivery Challan
• Payment Voucher
• Receipt Voucher
• Refund Voucher

2. HSN Code

There is also a change in the HSN code requirement under GST to be printed on the Tax Invoice. The following are the changes

• For taxpayers how are having turnover above ₹, five crores are required to show six digits
• For taxpayers whose turnover is below ₹, five crores are required to show four digits in business-to-business transactions. In the case of Business to Customer Transactions, it is optional.

The taxpayers have to make necessary changes for the Item master if not updated with the latest provisions.

It is recommended to make changes for the item master with eight digits as it will be applicable in the near future, and changing master data frequently is not advised. Moreover, it is time-consuming and unproductive work.

3. E-invoice

e-invoice is required to be issued by taxpayers whose aggregate turnover is above ₹ 50 crores during the last three years from 1^st April 2021.

It is recommended to make changes to the accounting or ERP system to address the above change.

If the taxpayer does not issue an e-invoice, is it not considered a tax invoice, and the recipient cannot take input tax credit at all.

It can be implemented using any of the four methods

• Application Program Interface (API)
• Secure File Transfer Protocol (SFTP)
• Bulk JSON
• Single JSON

For adopting any of the above methods, the taxpayers can approach any of the GST Suvidha Providers (GSPs or Application Service Providers (ASPs).

Even though the taxpayers will be using the Bulk or Single JSON upload for the generation of e-invoice from the department portal or ASP/GSP solution, the same will not be integrated with the Accounting/ERP system; this may pose a challenge in the future. It is strongly recommended to update the Accounting/ERP system with e-invoice details for future references.

4. LUT

Letter of Undertaking is required to be taken by taxpayers who are making Zero Rated Supplies, and a new one has to be obtained before 1^st April 2021.

It is recommended to take the same at the earliest, or it may impact your outward supplies accordingly.

5. Accounting package with audit trail and edit log

As per the latest notification from the Ministry of Corporate Affairs, all companies using accounting packages have to ensure that there is an audit log in the accounting package with the edit log.

Companies have to ensure that they are enabling the same if they maintain the same or request their accountant or CA to do the same.

There is a difference between the audit trail and edit log, in case of audit trail only Who is Who information is captured and in case of Edit log the date elements changed is also captured for future reference.

6. Change in Income Tax Rates – TDS & TCS

Due to the pandemic and lockdowns, the Government has announced a reduction in tax rates up to 31^st March 2021 for some sections, and now from 1^st April, the new rates or actual rates will be applicable.

It is recommended to verify and enter the new TDS / TCS rates in the masters with the effective date to maintain the audit trail as per MCA notification. In case of shot, deductions of TDS or recovery of TCS penal provisions are applicable.

The above listed are major changes required to be carried out and same may vary from each taxpayer based on his nature of business and turnover. The taxpayers should always remember one thing, cost of non-compliance is a costly affair compared to the cost of compliance. Wherever required the taxpayers should take professional advice and not relay in information available in public domain to their best interests.

Disclaimer

Any views or opinions represented above are personal and belong solely to the author, and do not represent those of people, institutions, or organizations that the author may or may not be associated with within a professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

Role of Technology in GST 2.0

Goods and Service Tax has been rolled out in India from 1^st July 2017, and now it is about 28 months, and during this period, we have seen a lot of changes being announced by the Government. The roll out of GST is dubbed to be the largest reform after Independence, but in reality, it is a business process reform as the trade and industry have to change their business process, and also, the Department has adopted technology and started doing data analytics to find out the errant taxpayers. All these are the things of the past,  there are a lot of changes being announced, and for that, the trade and industry have adopted to them else they will receive the same as a shocker like the roll out of GST or matching of invoices for availing the input tax credit.

As we are in the era of digitization from banking to day to day payments, if we do not embrace technology, we will be missing the bus, and it will impact the top line and bottom line of our business. In GST, very important changes are announced, and some of them are already effective some or going to be rolled out in 2020. The areas in which technology can help us to run our business smoothly and without

Matching for availing input tax credit

One of the major changes seen in GST is in the Return filing process. In the erstwhile tax regimes, the filing of returns was done manually or in some cases, filed electronically. There was no validation between the suppliers’ returns and the buyers’ returns, but in GST, it is implemented as the Government was to weed out the black sheep from the system. Matching was part of the GST law and the return formats, but it has to be deferred as small taxpayers were not used to it and did not have the know-how of doing the same. Now the same has been made effective from 9^th Oct 2019 through Notification No 49 – Central Tax. The taxpayer is eligible to take input tax credit only based on the supplies filing of GST Returns. Invoices uploaded by the supplier has to be matched with the buyers purchase register, this can be done manually if the number of transactions is less as in case of small traders but in case of medium to large organizations where there are thousands of purchase invoices and multiple GST Registration Numbers, matching manually is a challenge, technology can adopt us the do this job seamlessly. There are various solutions available in the market where the GSTR – 2A data can be imported using the API’s and then uploading the purchase register with the relevant data, matching will be done seamlessly and accurately.

Adoption of technology for this activity not only saves time but also safeguards the organizations from paying interest and penalty on account of availing input tax credit wrongly due to human errors.

e-invoice

Tax evasion is one of the biggest challenges which the Governments face across the globe, and as part of it, many of them have adopted/implemented e-invoicing. If technology is adopted, e-invoicing is very simple. The suppliers will generate the tax invoice in his system and send the data through APIs (without human intervention) to the Invoice Registration Portal (IRP), and once the IRP validates the data, a unique number is generated and sent back. The same is imported, and the tax invoice can be printed. All these activities take place with the help of technology and happen in a matter of a few seconds. It will ensure that there are no disruptions in the business process; alternatively the taxpayers can upload the data manually on the IRP, but there will be room for data entry and human errors; this will lead to another set of compliance issues.

IRP not only generates the IRN but also shares the data with the supplier and updates in Anx -2, updates the Anx- 1 of the supplier, and also generates the Part – A of the e-waybill. In a nutshell, the adoption of technology for one activity has resulted in the accomplishment of three different tasks.

e-invoice is being rolled out from 1^st Jan 2020 voluntarily and for B2B transactions, with matching in place for availing input tax credit, this makes the life of taxpayers very easy if the technology is adopted and taxpayers start issuing e-invoices.

New Returns

As a part of the simplification of the GSTR Return filing process, the Government has consolidated multiple returns into a single return with annexures. This is a welcome move, but again, this requires some changes in the business process and the way transactions are recorded.

The major shift we have seen in GST is filing of returns electronically and reporting of transaction data, but with the new format for GST returns, the Government is going one step ahead and is asking the taxpayers to report the same at the HSN level. It means that the taxpayers have to start filing the returns at the invoice line level or group at the HSN level if there are multiple lines on the invoice with the same HSN. This activity cannot be done manually, and for this, digitalization is required, and there are no exceptions for filing. The only exception is for the periodicity of return filling but not for the data. To make the life of MSME’s simple and easier before the rollout GST, the Government has shortlisted and validated free accounting software for MSME to adopt them.

Entering the data manually will only complicate the process and gives room for human and data entry errors. As the new returns are applicable from 1^st April 2020, the taxpayers should have a plan for the adoption of digital ways for the issue of tax invoices so that the return filing is accurate and duplication of work is avoided.

GST Audit / Annual Returns

Every taxpayer who has to file the GST Annual Return GST Audit, the data to be uploaded in the returns are at a micro-level. Being the initial years of rollout of GST, many of the taxpayers are not having the data required for filing of the GST Annual Return. To give legroom for the taxpayers, the Government has relaxed the requirements for the first two years, but going forward, the micro-level data has to be uploaded.

The data has to be captured at the transaction creation time only, and it cannot be done as a post-mortem activity. For the data to be in place, again, digitalization is the only solution. This will help in the maintenance of the books of accounts easily and being GST compliant. For this, the taxpayers have to revisit their ledgers/chart of accounts and create new once wherever necessary, so that the transactional data is updated accordingly.

Apart from the ledgers, the HSN summary and tax rate wise data also have to be uploaded; this is possible only if the taxpayers have a proper accounting system in place. For small taxpayers, it may not be a challenge, but for the MSMEs and the big taxpayers, it is going to be a challenge if necessary changes are not incorporated in the accounting packages / ERP.

As the compliance requirements are stringent and mandatory, the taxpayers have to adapt to the new age technologies and start doing business. The adoption of technology helps them to concentrate on their core business areas rather than spending productive time on compliance work. We as professionals, have to guide the taxpayer accordingly and help them in the technology adoption. Things can be done without technology, but they will consume a lot of time and effort. As business is slowly moving from the unorganized sector to the organized sector, there will be some teething troubles, and we should join hands together for the transformation to happen smoothly.

Disclaimer

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the author may or may not be associated with in professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

This article is published in Souvenir released in the Southern Regional Cost Convention held in Chennai in Nov 2019.

360° analysis of Circular No. 123/42/2019 – GST

Restrictions on Input Tax Credit is notified on 9^th Oct 2019 wide Notification No 49/Central Tax, dated 9^th Oct 2019. There is a lot of confusion and the process of availing the restricted input tax credit by the trade and industry and along with the professional. Keeping in view of all these, CBIC has issued Circular No. 123/42/2019– GST dated 11^th Nov 2019. Though the circular clarifies most of the points, there are still a couple of points on which clarity is required.

Points clarified in the Circular No. 123/42/2019– GST are

1. Restrictions on 20% input tax credit is applicable for availing input tax credit after 9^th Oct 2019, thereby meaning it is applicable for the filing of the return for Sep 2019 also.
2. Restriction of 20% is applicable only for the invoices, debit notes and credit notes reflected in GSTR – 2A
3. Restriction of 20% is not applicable on the IGST paid on imports, ISD transfer, etc., which are not part of the GSTR – 2A
4. Restriction is not applicable supplier wise but on the total eligible credit. Ineligible credits have to be deducted from the available credit from GSTR – 2A
5. If the total amount of restricted credit of 20% is more than the eligible credit, then it is restricted to the eligible amount only.
6. The taxpayer can take the differential amount of input tax credit where the suppliers have filed the returns in the subsequent tax periods

Points which require clarification are

1. The amount of restricted credit claimed during the month is for which tax? Is it to be considered separately for CGST, SGST, and IGST or the sum of all the taxes?
2. What would be the treatment if the taxpayer has claimed for IGST only, and the suppliers have filed returns on which CGST +SGST is available?
3. Ineligible credit in case of the same supplies used for the taxable and exempted supplies will be known at a later period, in such a case who to determine the eligible credit?

As per the author’s interpretation, it is based on each tax and not the total input tax credit available in GSTR – 2A as the said notification is issued concerning CGST Rules. The third point definitely needs some clarification based on the wording used in the circular “The credit available under sub-rule (4) of rule 36 is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers. Further, the calculation would be based on only those invoices which are otherwise eligible for ITC. Accordingly, those invoices on which ITC is not available under any of the provision (say under sub-section (5) of section 17) would not be considered for calculating 20 per cent. of the eligible credit available.”

The taxpayers have to do a cost-benefit analysis after considering all the scenarios, the amount of additional investment involved for claiming the restricted input tax credit as it involves changes in the accounting systems and keeping track of the same. Even if the taxpayers decide not to go for the availing restricted 20% credit, still they have to change the accounting practice for availing input tax credit. Embracing technology will help the taxpayers to overcome the challenges of maintaining the reconciliations manually and also keeping track of it from time to time and update it. The changes in accounting required for availing the 20% restricted input tax credit, the details of the changes in the accounting can be referred here

Whatever the decision the taxpayers have to take, they have to take it at the earliest as the clock is ticking, and the due date for filing of GSTR – 3B for Oct 2019 is approaching fast.

Disclaimer

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the author may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

HSN codes for Services

List of HSN / SAC Codes for Services in Goods and Service Tax

For the detailed list click here

 

GST ITC Impact on financial year closing

The input tax credit availed in GST is under provisional basis…the reason is matching is not done…….so what are the financial implications? Do i need to state it as contingent item or make  a provision for the same in the financials? – point to ponder before close of financial statement for the FY 2017 – 18?

GST Tip – 386

No person shall be eligible to attend before any authority as a goods and services tax practitioner in connection with any proceedings under the Act on behalf of any registered or unregistered person unless he has been enrolled as GST Practitioner.

GST Tip 182

Input tax credit for cess being levied under Goods and Services Tax (Compensation to States) Act, 2017,  is eligible only for the making the output tax liability of the Cess under the same act and not for payment of any other taxes output liability under GST.

GST Tip – 181

Under the Goods and Services Tax (Compensation to States) Act, 2017, Cess will be levied on all interstate and intra-state transactions on the supply of goods and service notified by the GST council from time to time. Cess is not applicable to be paid by persons who have opted for registration under composition scheme.

GST Tip – 175

Input tax credit with respect to a banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances have an option to claim only 50% of the GST taxes paid as Input Tax Credit. Alternatively, they can avail input tax credit to the extent excluding the services used for exempted and zero rated supplies.

GST Tip – 168

The definition of “manufacturer” having reference to the existing reference of Central Excise Act 1944. The new definition of manufacture is “manufacture” means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term “manufacturer” shall be construed accordingly.